For Burgeoning Emerging Markets, All Business is Local

Big Pharma fails to take full advantage of emerging markets by not tailoring strategies to local practices and expectations.

With growth slowing to a crawl in their largest markets, most major drug firms are focusing significant resources in emerging markets - markets that now provide roughly one-third of the industry's growth, double their share two years ago.

But many are not taking full advantage of the opportunities because they approach these markets with extensions of their developed-market strategies, pointed out David Campbell, a senior principle at SDG Life Sciences. Speaking at a Nov. 20 Webinar cosponsored by IMS and FDC/Windhover, Campbell urged companies to tailor their strategies in recognition that all emerging markets, like politics, are local. Companies should, for example, be attuned to local reimbursement dynamics, he advised.

(Editor's note: A free ¹ replay of the Webinar is available online).

Illustrating the lure of emerging markets, Campbell noted that annual dollar sales growth in mature markets such as the U.S., Western Europe and Japan is about 2 percent to 5 percent, while collective growth in the emerging sectors - which IMS has dubbed "pharmerging" markets - is about 14 percent this year. Click here to see a ² full size version of the chart below comparing growth in mature and emerging markets.

Growth is occurring even faster in individual markets such as China, India, Turkey and Russia, with China forecast by IMS to grown between 19 percent to 22 percent annually through 2012. Turkey is growing 14 percent to 17 percent, and Russia is growing 17 percent to 20 percent annually.

And while the U.S. market provided 48 percent of the pharmaceutical industry's growth in 2006, it will provide just 9 percent by 2009, IMS forecasts. The pharmerging markets accounted for 17 percent of growth in 2006 and will grow a projected 34 percent next year.

Moreover, the pharmerging markets have considerable appetite for pharma's late-life and patent-expiring products, thus offering additional growth for drugs that in Western markets face generic competition.

None of these emerging markets will solve the drug industry's basic growth problem nor transform a Big Pharma's business, Campbell cautions. Emerging markets won't let drug executives "escape the expectations" that blockbusters have created in mature markets. Bayer may be closest to an emerging-market powerhouse, with nearly 15 percent of sales coming from pharmerging countries, where Bayer's business is growing at greater than 15 percent.

Still, such markets generally offer the most reliable growth available.

Radical differences from one market to another

But Campbell advised that companies are not maximizing their position in the emerging markets in which they currently play largely because they don't tailor their portfolios to individual country-market requirements. Emerging markets share some broad similarities - like a preference for generics - but nonetheless are radically different from each other.

For example, in Turkey, government reimbursement pays for nearly all drug sales while in Russia, private payment accounts for 60 percent to 70 percent of drug sales.

The idiosyncrasies of each market often account for the strength of local competitors. In Brazil, five of the top 10 companies are local. The biggest company in the market, EMS, with sales of about $900 million, was financed entirely by local investors and, like other local companies, probably will benefit from government investment in private companies.

And while the majority of pharmerging country sales go to branded and non-branded generics, most Big Pharmas rely heavily on products they're selling in their mature markets, and getting less than 10 percent of emerging-market sales from products not sold in the Top 8 markets.

Some companies do better than others. Abbott gets about 17 percent of its pharmerging sales from products it doesn't sell in mature markets - nearly triple the average. GlaxoSmithKline's business in India, a major focus for the company, mirrors very closely, both in therapeutic emphasis and in size, local hero Ranbaxy. Nycomed has become a top-10 company in Russia in part through sheer persistence: it set up an affiliate in 1993 and patiently cultivated the market.

The credit crisis, the associated market gyrations and - particularly for Russia - the rapid decline in oil prices certainly will affect the growth of these markets, noted Campbell. Government payment programs are likely to increase prescribing and payment restrictions, for example. And private-pay market growth likewise will slow to some extent. But the growth of these markets now has a momentum of its own, and, he argues, companies late to the opportunity are likely to be unable to exploit it.

-Roger Longman ([email protected])